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Reflation? Or just a scare…

The textbooks say that fiscal policy tools are best utilized early in the business cycle, as the boost to stimulus can serve to offset early cycle weakness. But when used later in the business cycle, the boost may accomplish little more than the addition of inflationary pressures as there is little slack in the economy to absorb new stimulus. Now eight years after the recession, given the current economic environment (with unemployment already below the Fed’s long-term target) and the current agenda (focused on tax reform, deregulation and infrastructure spending), many pundits are calling for ever-rising inflation in the years ahead.

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